United States District Court, Southern District of New York
August 20, 2003
ALBERT R. URBONT PLAINTIFF, AGAINST PRUDENTIAL INSURANCE COMPANY OF AMERICA, INC., DEFENDANT.
The opinion of the court was delivered by: Thomas Griesa, Senior District Judge
Plaintiff Albert Urbont sues the Prudential Insurance Company claiming that Prudential breached an insurance contract providing medical benefits. The claim is that during each year of coverage he was entitled to have medical costs covered up to the amount of $50,000. Urbont seeks declaratory judgment that he is entitled to certain benefits. He also seeks compensatory and punitive damages for breach of contract and includes a claim that Prudential acted in bad faith.
Prudential has moved for summary judgment dismissing Urbont's causes of action. Urbont has in turn cross-moved for summary judgment on his claims. Prudential's motion is granted. Urbont's motion is denied. [ Page 2]
In May of 1983 Urbont and Prudential entered into a contract for major medical insurance under which Prudential was to provide coverage to Urbont in the event that he became sick or injured. This type of insurance is distinct from basic hospital or basic medical insurance. The insurance contract was in effect from 1983 through 2001.
The dollar amount of the coverage under the policy was related to what the contract refers to as the "Benefit Term." The Benefit Term is defined as follows:
Each benefit term is a calendar year (January 1
through December 31) except that the first term for a
covered person starts on the date such person becomes
The limits on the amount of coverage under the policy are defined in the section entitled "Limit on Total Benefits." The first paragraph of this section states that:
1. We limit the total amount we will pay in one or
more benefit terms for all insured charges
incurred by a covered person. At the start of
the contract, the limit is the initial Aggregate
Benefit shown on page 3.
The initial Aggregate Benefit listed on page 3 of Urbont's policy was $50,000. The next paragraph of the Limit on Total Benefits portion of the [ Page 3]
policy describes the method by which the dollar amount of the benefits due under the policy would be calculated. This portion of the policy states that:
When we pay any benefits, a covered person's Aggregate
Benefit limit is reduced by the amount of such
payments. If this happens, we will later restore
either a part or all of the reduction. This will be
done by increasing the Aggregate Benefit limit on each
January 1 on which the person is a covered person. The
increase will be the lesser of $1000 and the amount
needed to restore the initial Aggregate Benefit. Any
new limit will apply to future insured charges for the
From 1983 to 1997 Urbont did not incur substantial medical expenses, therefore his $50,000 Aggregate Benefit under the policy remained largely untouched. This changed in 1998 when Urbont's health began to fail due to illness. By May of 2001 Urbont had exhausted his Aggregate Benefit and exceeded his coverage with Prudential by $256.79. This exhaustion resulted from the application of the methodology contained in the language quoted above.
Thus, when payments were made they were deducted from the balance of the Aggregate Benefit. When the amount paid was less than $1,000 that amount was restored the next January 1. If the amount was greater than $1,000, then $1,000 was restored the next January 1. The relevant figures for the years 1995-2001 are shown in the following chart. [ Page 4]
YEAR Amount Amount Paid This Amount of Aggregate
Restored Jan 1 Year Benefit Remaining
1995 — $403.54 $49,596.46
1996 $403.54 $2,338.30 $47,661.70
1997 $1,000.00 $3,886.79 $44,774.91
1998 $1,000.00 $5,184.99 $40,589.92
1999 $1,000.00 $13,386.64 $28,203.30
2000 $1,000.00 $23,784.64 $5,418.64
2001 $1,000.00 $6,675.43 ($256.79)
On May 4, 2001 Prudential notified Urbont that the Aggregate Benefit on his policy had been exhausted. On May 8, 2001 Urbont called Prudential to complain about the notice and requested a detailed explanation of how his $50,000 Aggregate Benefit had been exhausted. On May 10, 2001 Urbont again called Prudential and requested a detailed breakdown of all amounts paid for all charges considered on and after May 1, 1999.
On May 30, 2001 Prudential responded to Urbont's May 10, 2001 inquiry by providing him with a chart showing, for the period of May 1, 1999 to May 10, 2001, each provider of services, the amount of the charge for the provider's services, and the amount paid for each charge. [ Page 5]
On June 19, 2001 Prudential responded to Urbont's May 8, 2001 inquiry and provided him with a chart showing how the Aggregate Benefit had been exhausted. A portion of that chart is excerpted above.
On August 21, 2001 Urbont filed suit against Prudential in New York State Supreme Court, New York County. Prudential then removed the suit to this court on September 18, 2001.
1. Breach of Contract
Under New York law, the "initial interpretation of a contract is a matter of law for the court to decide." International Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir. 2002). The central inquiry for a court at the initial interpretation stage is whether the contract is ambiguous with respect to the term disputed by the parties. Id.
An insurance contract will be considered ambiguous when its terms "could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire [ Page 6]
integrated agreement and who is cognizant of the customs, practices, usage and terminology as generally understood in the particular trade or business." International Multifoods Corp, 309 F.3d at 83.
The Second Circuit has stated that if the court finds "that the contract is not ambiguous it should assign the plain and ordinary meaning to each term and interpret the contract without aid of extrinsic evidence and it may then award summary judgment." Id. A provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading. Haber v. St. Paul Guardian Ins. Co., 137 F.3d 691, 695 (2d Cir. 1998). A provision does not become ambiguous merely because one of the parties argues for a different interpretation. Check Rite Ltd., Inc. v. Illinois Nat'l Ins. Co., 95 F. Supp.2d 180, 189 (S.D.N.Y. 2000).
Urbont contends that for each benefit period — i.e., each year of coverage — there was an Aggregate Benefit of $50,000. Under Urbont's interpretation, the provision regarding Limit on Total Benefits provided for a restoration of the full Aggregate Benefit Limit each January 1. He relies on language earlier quoted:
. . . we will later restore either a part or all of
the reduction. This will be done by increasing the
Aggregate Benefit limit on each January 1 on which the
person is a covered person. The increase will be the
lesser of $1000 and the amount needed to restore the
[ Page 7]
initial Aggregate Benefit. Any new limit will
apply to future insured charges for the covered
Urbont argues that this language required an annual increase corresponding to the "amount needed to restore the initial Aggregate Benefit." The problem is that this interpretation ignores the full sentence and its "lesser of $1,000 and" language.
Contrary to Urbont's argument, the policy did not provide for an unqualified restoration to an Aggregate Benefit of $50,000 at the beginning of each year. Instead, the policy provided that the lesser of $1,000 and the amount needed to restore the initial Aggregate Benefit of $50,000 would be provided as of the beginning of each year.
It would probably have been preferable for the policy language to say "the lesser of $1,000 or the amount needed to restore the initial Aggregate Benefit." Nevertheless, the meaning of the policy language does not really present any ambiguity or lack of clarity. The key word is lesser and there can be no doubt that what was to be added at the beginning of each year was $1,000 or the amount needed to restore the initial Aggregate Benefit, whichever figure was the lesser. [ Page 8]
The result in the present case was that, as Urbont's medical costs increased substantially beginning in about 1996, the Aggregate Benefit was drawn down sharply. For instance, in the year 2000 Urbont incurred medical costs of $23,784.64. Under the terms of the policy, the lesser of $1,000 and $23,784.64 was restored at the beginning of 2001. This lesser figure was, of course, $1,000. The result was that the Aggregate Benefit was reduced by $22,784.64 ($23,784.64 minus $1,000).
Since the initial Aggregate Benefit of $50,000 has been exhausted, Prudential is under no further obligation to pay Urbont's claims. Urbont is not entitled to the declaratory judgment he seeks, nor is he entitled to damages for breach of contract.
2. Bad Faith
Urbont further claims that Prudential acted in bad faith by "continually refusing" to provide him with copies of medical bills previously submitted to Prudential for reimbursement and because Prudential's reading of the policy was unreasonable. Each of these claims is without merit. [ Page 9]
Prudential provided Urbont with the requested bills, albeit not in as timely a fashion as Urbont would have liked. The bills were not immediately provided to Urbont because when he requested them on May 10, 2001, Prudential had a good faith basis to believe that there was a question as to whether they could be released without a subpoena since they were third-party records that had been submitted to Prudential by various healthcare providers, and not records created by Prudential. However, on July 17, 2001 Prudential released the bills without the service of subpoena.
Urbont's claim that Prudential engaged in bad-faith conduct by refusing to accede to Urbont's interpretation of the Policy, is of course, disposed of by what has already been held in this opinion. [ Page 10]
For the foregoing reasons, Prudential's motion for summary judgment is granted. Urbont's cross-motion is denied. The action is dismissed.
SO ORDERED. [ Page 1]
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